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TMI Blog2005 (1) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... ike Medicinal Act, 1955 does not deal with diversion of drugs to human consumption as alcoholic beverages which subject is dealt with by the Bihar Act, 1915, which regulates such use, possession and consumption by issuance of license on payment of fees. Hence, the State and the Board were competent to issue the impugned notifications. The question of quid pro quo is necessary when a fee is compensatory, for every fee quid pro quo is not necessary. In the case of regulatory fee it is not necessary to establish the factum of rendering of service. Therefore, there is no question of regulatory fee being invalidated on the ground that quid pro quo has not been established. Since we have held with reference to Entry 8 read with Entry 6 of List-II that the Bihar Legislature was competent to enact the said 1915 Act as amended, there is no merit in the contention advanced on behalf of the manufacturers that section 2(12a) of the Bihar Act, 1915 constituted colourable exercise of power. The appeals are allowed and the validity of the Bihar Excise Act, 1915 as well as the validity of the impugned notifications/communications, all dated 3-8-1988. - 1543-1547 of 1999 - - - Dated:- 11-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conclusion that the State Legislature was wrong in including medicinal preparation within the meaning of the word intoxicant under section 2(12a) of the Bihar Act, 1915, by amending Act No. 6 of 1985 as the said item has been set apart by the Constitution for Parliamentary legislation; that this exercise by the State Legislature amounted to colourable exercise of the power, which could have been avoided; that the medicinal and toilet preparations are subjected to taxes and duties under the Medicinal Act, 1955 and, therefore, these very products cannot be subjected to double taxation, one by the Central Government under the Medicinal Act, 1955 and other under the Bihar Act, 1915. According to the High Court, the levy of fees under the impugned notifications, under the licensing procedure, was in substance an excise duty, which violated Article 301 of the Constitution, which guarantees free trade, commerce and intercourse throughout the territory of India. It was further held, that, the State had failed to show any intelligible differentia with a clear cut nexus with the objects sought to be served for excluding Unani medicines from the operation of the impugned notifications a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no violation of Article 14 of the Constitution, as alleged. Learned senior counsel submitted that the regulatory fees do not attract the principle of quid pro quo and consequently, such fee is not hit by Article 301 of the Constitution. 6.Our attention was drawn to Notification Nos. 2/23-3-88/1 dated 3-8-1988, which refers to levy of license fee for vend of medicinal preparation in wholesale @ ₹ 3,000/- and for retail sale @ ₹ 1,000/-, and that for retail sale of medicinal preparation containing alcohol prepared by distillation, the fee of ₹ 1,000/- is made payable in advance. It was urged on behalf of the manufacturers that the said impugned notification seeks to levy license fee for all types of medicinal preparations with or without alcohol and consequently, the impugned notification impinges on the field occupied by the Medicinal Act, 1955 referable to Entry 84 List-I. On instructions, Shri Dinesh Dwivedi, learned senior advocate for the State stated before us that the fees shall be charged and recovered for vend of medicinal preparations containing alcohol and that no fees shall be levied, charged and recovered for vend of medicinal preparations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exercise of power by the State Legislature, which is against the scheme of the Constitution. The next submission of Shri Mohta was that State law and impugned notifications are violative of Article 14 insofar as they do not regulate and control Unani drugs; that no reasons have been given for regulating only Ayurvedic medicinal preparation and not Unani drugs and that even after amending the said 1915 Act, several classes of other medicines remain outside the regulatory provisions of the 1915 Act. Learned senior counsel submitted that by not regulating Unani medicines, the Act and the notifications have brought about an invidious distinction which is a negation of the equality clause in Article 14. Learned senior counsel next submitted that in the absence of quid pro quo the fees imposed on medicinal preparations under the impugned notifications constituted duty or tax and consequently, violated Article 301 of the Constitution. For the aforestated reasons, no interference is called for in these civil appeals. 8.The scheme of the Bihar Act as reflected in the preamble is that it is an Act to consolidate and amend the law relating to import, export, transport, manufacture, sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... toxicants by any person or class of persons subject to such exceptions, if any, as may be specified in the notification. Under section 20, no intoxicant can be manufactured or produced from an intoxicating drug and sold except under the authority and subject to license granted in that behalf by the Collector. Section 22 deals with grant of exclusive privilege of manufacture and sale of country liquor or intoxicating drugs or any other intoxicant. In other words, the State can levy duty in the form of a payment for grant of exclusive privilege in respect of country liquor or intoxicating drugs or any other intoxicants under section 22 of the Act. Under section 27, the State is empowered to impose excise duty on any excisable article imported into the State or on any excisable article exported out of the State or on any excisable article transported within the State or on any excisable article manufactured under a license granted under section 13 of the Act or on any excisable article manufactured in any distillery or brewery licensed under the Act. Under section 30 of the Act, the Collector is required to prepare a List indicating licenses proposed to be granted for retail sale of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that the Act seeks to license and regulate use (including consumption) and possession of medicinal preparations containing alcohol as alcoholic beverages. The said 1915 Act, as amended, takes over from where the 1955 Act or 1940 Act ends. 10.However, it was suggested that the provisions of the Bihar Act are in conflict with the provisions of Medicinal Act, 1955, hence, we may examine its provisions. 11.The legislative history of the Medicinal Act, 1955 is well known. Under Entry 40 List-II of the Seventh Schedule to the Government of India Act, 1935, medicinal and toilet preparations containing alcohol were subjected to provincial excise duties. Under the Constitution, the entry relating to excise duty on medicinal and toilet preparations containing alcohol was transferred to Union List. Parliament accordingly enacted the Medicinal Act, 1955 to provide for the levy and collection of duties of excise on medicinal and toilet preparations containing alcohol. The said Act, 1955 is relatable to Entry 84 List-I of the Seventh Schedule to the Constitution, which reads as under : Duties of excise on tobacco and other goods manufactured or produced in India except- (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said 1915 Act regulates use, possession, transport, import and export of intoxicants. It regulates use and possession of medicinal and toilet preparation as alcoholic beverage. In Mritsanjivani Sura, level of alcohol, though self generated, is so high that it can be consumed as alcoholic beverage. The subject matter of the impugned State law, therefore, cannot conflict with the 1955 Act. The power of the State to regulate and control the use and possession of medicinal preparation containing alcohol as alcoholic beverage falls under Entry 6 (Public Health) as well as Entry 8 (Intoxicating Liquor) of List-II in the Seventh Schedule to the Constitution, whereas the 1955 Act is referable to Entry 84 of List-I which deals with taxation. The object of the impugned notifications and communications dated 3-8-1988 is to license and regulate on payment of fees the activity of use (including consumption) and possession of such preparations containing alcohol as beverages and, therefore, they fall within the ambit of sections 5, 19(4), 38, 39 and section 90 of the 1915 Act. 13.It was urged on behalf of the manufacturers that the said 1915 Act (as amended) is in conflict with the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and not to its use as alcoholic beverages. Under the rules, the manufacture of Ayurvedic drug for sale alone is regulated. There is no provision in the Rules regulating the use of such drugs as alcoholic beverages. The object of the Drugs Act is to maintain the quality of drugs as drugs. Its use as any other commodity in the hands of the consumer is not regulated. Hence, the Drugs Act is relatable to Entry 19 of List-III, which deals with drugs and poisons, subject to Entry 59 of List-I regarding opium. Lastly, the said Act regulates the manufacture of drug for sale and distribution as a drug. If a druggist sells a drug across the counter, he cannot be faulted. His license cannot be cancelled. He has not converted the drug into an alcoholic beverage, which activity can be resorted to by a consumer. The consumer can misuse or abuse the drug after he buys the same from chemist. Such an activity falls within the provisions of the Bihar Act, 1915, as amended and not under the Drugs Act, 1940. 15.In order to appreciate the contentions advanced before us on both sides, it is necessary to reproduce the relevant entries in the Lists of the Seventh Schedule to the Constitution. Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-II in the Seventh Schedule (in this Constitution referred to as the State List). Clause (4) says that Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State, notwithstanding that such matter is a matter enumerated in the State List . Article 248 vests the residuary legislative power in the Union. Article 249 empowers the Parliament to legislate with respect to a matter in the State List in national interest while Article 250 empowers the Parliament to legislate with respect to any matter in the State List if a proclamation of emergency is in operation. Article 251 says that the provisions of Articles 249 and 250 do not restrict the power of the Legislature to make any law which it is competent to make but if such law is repugnant to any of the provisions of the law made by the Parliament under the said Articles, the law made by the Parliament shall prevail so long only as the law made by the Parliament continues to have effect. Article 252 empowers the Parliament to legislate for two or more States by their consent. It also provides for adoption of such legislation by other States. Article 254 declares that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted substances was not in issue in the said case. 19.In the case of State of U.P. Another v. Synthetics Chemicals Ltd. Another reported in [(1991) 4 SCC 139], this Court has held that the power of regulation and control is separate and distinct from the power of taxation. Legislative exercise of regulation or control referable to Entry 8 of List-II is distinct and different from the taxing power attributable to Entry 84 in List-I. The legislative field for levying tax by the Central Government is set out in Entries 82 to 91 of List- I whereas the legislative field for levying tax by the State is set out in Entries 45 to 63 in List-II of the Seventh Schedule. There is no overlapping. Fields are clearly demarcated. The general entry for regulating distribution and supply is different from exercise of taxing power. The difference does not remotely touch each other. Entry 8 of List-II is a general entry for regulating the distribution and supply of substances. The said entry stands on its own. It is not limited or restricted by any entry in List-I or in List-III. 20.In the case of The Hyderabad Chemical Pharmaceutical Works Ltd. v. State of Andhra Pradesh Another, repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to regulate the use and possession of these substances which are capable of being used as alcoholic beverages under the Bihar Act, 1915 as amended. In our view, the said Bihar Act is relatable to Entry 8 read with Entry 6 of List-II in the Seventh Schedule to the Constitution. As stated above section 2 (12a) of the Bihar Act defines the word 'intoxicant' to mean liquor or any substance from which liquor may be distilled or intoxicating drug or medicinal preparation as defined under the Medicinal Toilet Preparations Act, 1955. Under the said Act, liquor is also defined vide section 2(14) to include all liquids consisting or containing alcohol such as wine, spirit, tari and any other substance which the State may by notification declare to be liquor. Hence, the 1915 Act covers use and possession of medicinal preparations containing alcohol, which subject matter is not covered by the 1955 Act. 21.In the case of State of Bihar Others v. Industrial Corporation (P) Ltd. Others reported in [(2003) 11 SCC 465], the respondents companies were engaged in the manufacture of rectified spirit from molasses allotted to them by Controller in terms of Bihar Molasses (Control) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that it was manufacturing rectified spirit which came within the exclusive province of the Central Government. With this contention the distillery approached this Court. After noticing the relevant entries in the Seventh Schedule to the Constitution this Court took the view that Entry 84 in List-I and Entry 51 in List-II complemented each other. Both provide for duties of excise. But while the States are empowered to levy duties of excise on alcoholic liquor for human consumption and on opium and narcotics products in the State but excluding medicinal and toilet preparations containing alcohol, the Union is empowered to levy excise duty on tobacco and others goods, except alcoholic liquor for human consumption. This Court further held that Entry 8 of List-II covers all aspects of intoxicating liquors within the State; it covers production, manufacture, possession, transport, purchase and sale. Entry 6 speaks of public health. It furnishes a ground of prohibiting consumption of intoxicating liquor. On reading Entries 6, 8 and 51 in List-II, this Court held that so far as potable alcohols are concerned, they are squarely covered by Entry 8. They are within the exclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment. The argument of occupied field in such a case is totally out of place. If a particular matter is within the exclusive competence of the State Legislature, that is, in List-II, that represents the prohibited field for the Union. Similarly, if any matter is within the exclusive competence of the Union, it becomes a prohibited field for the States. The concept of occupied field is relevant in the case of laws made with reference to Entries in List-III. The several entries in the List-III in the Seventh Schedule are mere legislative heads and it is quite likely that very often they overlap. Wherever such a situation arises, the issue must be resolved by applying the rule of pith and substance. Whenever, a piece of legislation is said to be beyond the legislative competence of a State Legislature, what one must do is to find out, by applying the rule of pith and substance, whether that legislation falls within any of the Entries in List-II. If it does, no further question arises; the attack upon the ground of legislative competence shall fail. In such a case, Article 246(3) cannot be employed to invalidate the legislation on the ground of legislative incompetence of State Legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion List, the State law was not passed in respect of the trade and was therefore not subjected to attack on that ground. 27.As stated above, an Ayurvedic medicinal preparation containing alcohol is capable of being used as an alcoholic beverage, just as an industrial alcohol is capable of being diverted to human consumption. It is now well settled by a catena of decisions that the manufacture of industrial alcohol is covered by the Central laws, however, its diversion can be regulated by State laws enacted with reference to Entries 6 8 of List-II. Similarly, duty on manufacture of medicinal preparations containing alcohol would fall under the said 1955 Act, however, use and possession thereof will fall under the State law, like the said 1915 Act. Similarly, manufacture for sale of a substance containing alcohol as a drug would stand covered by the said 1940 Act, however, its use and possession as an alcoholic beverage would fall under the State law. Licensing and regulation of an activity like use/misuse of medicine is an enormous activity involving heavy expenditure. Hence, it is open to the State Government to delegate some of its powers to the Board of Revenue to prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the impugned judgment. 29.As stated above, one of the grounds of attack before the High Court was that the Board of Revenue as well as the State was not competent to enact a law as well as the impugned notifications as Ayurvedic preparation containing alcohol was a drug as defined under section 3(a) of the Drugs Act, 1940, which was relatable to Entry 19 of List-III of the Seventh Schedule to the Constitution. In this connection it was urged that the impugned notifications were in conflict with the Drugs Act, 1940. We do not find any merit in this argument. The Drugs Act, 1940 is to regulate import, manufacture, distribution and sale of drugs. Under section 3(a), Ayurvedic or Unani drug is defined to include all medicines intended for use in diagnosis/treatment/mitigation or prevention of diseases. Chapter IVA of the Drugs Act, 1940, exclusively deals with provisions relating to Ayurvedic and Unani Drugs. It refers to making of regulations in respect of manufacture for sale of Ayurvedic and Unani drugs. On reading the provisions of the Drugs Act, 1940, as analyzed hereinabove, it is clear that as long as Ayurvedic or Unani drug is used as a drug for diagnosis/treatm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference between regulatory fees and compensatory fees. In the case of regulatory fees, like license fees, existence of quid pro quo is not necessary although such fees must not be excessive. Keeping in view the quantum of nature of work involved in supervising the activities under the Bihar Act, we are of the view that the fee mentioned in the impugned notification is reasonable and proper. 32.Similarly, in the case of State of U.P. Others v. Sitapur Packing Wood Suppliers Others, reported in [(2002) 4 SCC 566], this Court held that the question of quid pro quo is necessary when a fee is compensatory, for every fee quid pro quo is not necessary. In the case of regulatory fee it is not necessary to establish the factum of rendering of service. Therefore, there is no question of regulatory fee being invalidated on the ground that quid pro quo has not been established. 33.The next point which arises for determination is whether the fees levied under the impugned notifications violated Article 301 of the Constitution. We have held that the fees levied under the impugned notifications are regulatory in nature. In the case of State of Karnataka Another v. M/s. Hansa Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... List-II that the Bihar Legislature was competent to enact the said 1915 Act as amended, there is no merit in the contention advanced on behalf of the manufacturers that section 2(12a) of the Bihar Act, 1915 constituted colourable exercise of power. 36.Before concluding, we may clarify, that, the State will fix a period within which the manufacturers will apply for license on payment of fees (including arrears) in terms of the impugned notifications/communications no. 2/23-3-88/1, 2/23-3-88/2, and 2/23-3-88/3, all dated 3rd August, 1988. During this period, they will not be prosecuted. However, if the manufacturers fail to comply with the impugned notifications/communications within the stipulated period, then, the State Government, on expiry of such period, would be entitled to proceed against the manufacturers in accordance with law. 37.Subject to above, the appeals are allowed and the impugned judgment and order of the High Court dated 23-10-1989 passed in CWJC Nos. 7865, 7191, 7219, 8294 and 7864 of 1988, is set aside. We uphold the validity of the Bihar Excise Act, 1915 as well as the validity of the impugned notifications/communications, all dated 3-8-1988. However, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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